The State of Small Business? Good, and Getting Better

While politicians love to throw out sound bites proclaiming how integral small businesses are to the economy, it is easy to be skeptical of their claims. They are politicians, after all. However, after reviewing the fifth wave of the Small Business Success Index (SBSI), some of their claims are (surprise!) valid. Small businesses not only weathered the Great Recession, but they are
growing and optimistic about the economic recovery.

Starting a business is not for the faint of heart, but it is for those with a positive outlook. Even during the recession, the SBSI found that most owners were satisfied with their vocation, and that trend continues today: 61 percent are highly satisfied with being a business owner, while only 7 percent are dissatisfied. And yes, small businesses are indeed growing. During a rather
bumpy 2010, 38 percent of small businesses experienced a gain in sales over the previous year, compared to only 15 percent who experienced a decline.

As a result of a strong push forward in 2010, optimism for the future is at an all-time high. For the first time in two years, more small business owners think the economic climate is “improving” rather than “worsening” (35 percent compared to 19 percent). Small businesses are also more optimistic about the outlook for the economy in the next 12 months than a year ago, with only 15 percent believing the economy will decline compared to 26 percent who believed this a year ago. Also, the percent who feel they were impacted by the recession hit a peak last year and is starting to decline.

Optimism turns into realism when the state of small business marketing enters the picture. During the 2nd half of 2010, which this current SBSI report examined, an interesting dichotomy became evident. While small business success in marketing and innovation remained at a low-point after dropping earlier in the year, investments in web-based technology increased. While only one third of small businesses felt they successfully compete against big companies (compared to almost half a year ago) they began investing in websites, social media, and search engine optimizations (SEO) programs.

When we examine the website statistics more closely, the reason small businesses feel they cannot compete against larger companies becomes clear. Only half (56 percent) of small businesses have websites. Of those businesses with websites, only a quarter (27 percent) have a SEO program in place. In an age when we are rapidly shifting our lives online to shop, connect, and conduct research, the fact that more small businesses do not have a strong online presence is surprising. The lost opportunity is evident from the finding that small businesses that fail to leverage technology like websites are less competitive on the Small Business Success Index. For example, 33 percent of small businesses with a limited deployment of technology are “failing” on the index, compared to only 18 percent of those using a large number of technologies.

Simply having an online presence is not enough, of course. It must be maintained and updated consistently with fresh content, such as new blog posts, eBooks, white papers, digital brochures, events, testimonials, case studies, and other useful information that demonstrates a business’ expertise and keeps potential and current customers returning often. Unfortunately, 55 percent of small businesses update their sites less frequently than once a month, and 26 percent update them no more than once a year.

While small businesses launched websites, they also increased their use of social media as part of their online marketing strategy: 31 percent now use social media, up from 24 percent a year ago and 12 percent two years ago. The most commonly used social media sites are Facebook (27 percent) and LinkedIn (18 percent).

Additionally, savvy small business owners who were already using social media began using it in a mobile context. Nearly half (47 percent) use social media to send text messages to customers, while the same number (47 percent) use their mobile devices to respond to other people’s comments on social media sites. They also consider location-based websites the most relevant mobile marketing activity—almost half (48 percent) said it is at least somewhat valuable to their business.

As the economy continues to recover, many small businesses (28 percent) are planning to add staff in 2011 to expand (73 percent). If small businesses carry out their hiring plans, they will add a total of 3.8 million jobs to the U.S. economy this year. So yes, the politicians are right—small businesses are integral to the health of our economy.

The Small Business Success Index is published by Rockbridge Associates and sponsored by Network Solutions and the Center for Excellence in Service at the University of Maryland’s Smith School of Business. The SBSI is based on a survey that is conducted by telephone every six months. Five waves of the survey have been conducted to date:

Wave 1, the baseline survey wave, in December 2008 and January 2009 among 1000 small businesses